How the UK's April 2017 proposed tax changes may affect foreign investors......
With the UK government attempting to revolutionise the country’s property sector, next month sees the introduction of a range of new tax changes that property investors must be prepared for.
But these changes are aimed at restructuring the UK’s rental market and actually have little impact on overseas investors.
On March 4th, The National listed some of the changes which will be enforced from April, and questioned whether they could have a significant impact on overall returns for investors in the United Arab Emirates.
The key changes include:
- End of mortgage tax relief, meaning investors will be hit by a restriction on the high levels of tax relief they can offset against mortgage interest
- Introduction of inheritance tax on property owned by non-UK domiciled individuals or non-UK resident companies and trusts
While all overseas-based investors must be aware of these new regulations, it doesn’t weaken the UK property market’s position as one of the strongest, highest performing international investment sectors.
Here are 4 points that GCC investors should remember about these new changes – and why British real estate will remain a top choice for anyone considering adding overseas assets to portfolios:
1. If you’re a cash-buyer, you will be unaffected by changes to mortgage-tax relief
Quite simply, the easiest way to invest in UK real estate is if you can buy a property with cash. This doesn't mean that buying in cash is alway the best way to maximise returns, the power of leveraging through a mortgage can be much more profitable when preformed correctly.
Buying in cash will mean that you avoid having to deal with a bank or other lender to source the requisite funds and you won’t have to worry about how much mortgage repayments will cost you in tax.
You can better calculate your overall NET returns, and it also means you own your asset in full from day one without any creditors.
2. Avoid Central London
The UK’s capital city is the most popular overseas destination for high net worth investors in the GCC. And while the luxury properties and exclusive postcodes of London are an undoubted draw, it may not necessarily be the best place for you to invest.
Average property prices in London are more than double the UK average. With new inheritance tax measures about to hit the highest value homes in the country the most, has the time now come for investors to consider other British cities?
Yields in key regional cities are higher than London and have been for some time. Manchester, for example, is Britain’s number one city for property investment yields, backed by strong capital appreciation, population growth and regeneration.
And now price growth in the capital is slowing, too. Average values in the capital have traditionally risen at a faster rate than the national average. But according to the latest ONS and Land Registry Figures, average London property prices rose by just 7.5% in 2016, versus national growth of 7.7%.
Following the pound’s fall to a 31-year low, there has been a rise in inquiries from international investors for real estate in Manchester and greater London.
3. Choose a fully managed investment from a reputable company
Negotiating your way through tax and legal issues, especially when they’re in a foreign country, can prove daunting and consume a lot of your time.
But not when you buy property through a reputable company. They should be able to guide you through the British legal framework when buying a property, and should also clearly outline all the necessary taxes you will be liable for, both at the point of purchase and throughout the term of your ownership.
Additionally, fully managed investments are perfectly designed for international investors. Not only will the company take responsibility for the tenanting and daily management of your property, protecting the longevity of your investment, but often they will guarantee an assured period of rental returns net of all costs. This will help you to better ascertain your overall costs, giving you the most accurate picture of the level of returns you stand to make before you go ahead with a purchase.
4. These new changes are designed to help steer the future of UK property investment in the direction of build-to-rent
These new changes mark an exciting time for the British property market. Why? Because they’ve been designed to ring in a new era for the country’s growing rental market.
Purpose-built rental properties – city centre developments that incorporate 21st century design and come equipped with value-driving amenities – are commonplace in Middle Eastern cities such as Dubai.
But in the UK, traditional rental properties are often old, located on the outskirts of town, and come with poor standards of management and service.
The British government wants to change this. With a rental population at record size and growing, it knows how important it is to have a rental sector that can provide suitable accommodation for the rising number of tenants that rely on it.
These new taxes will hit traditional UK based buy-to-let landlords the hardest, and the government hopes they will reduce the level of investment into this outdated sector. In its place will come the kind of property GCC investors are familiar with. Build-to-rent property will become the future of UK property investment – and it’s those that enter the market now that stand to make the best long-term gains.
For more information on how you can invest into the UK please get in touch.
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